When famous investors share the wisdom they've gained from years of success, those of us on Main Street often sit up and take notice. And when these investors put their money where their mouths are, it's noteworthy -- especially with the Oracle of Omaha himself, Warren Buffett.
Buffett is hardly capricious about his stock purchases. Once a company finds its way into the Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%) portfolio, it will likely remain there for an extended time. Therefore, it's a worthy exercise for these two fool.com contributors to take a close look at two of Berkshire Hathaway's positions: Apple (AAPL -0.35%) and Chevron (CVX 0.37%).
Apple is Berkshire Hathaway's core holding
Lee Samaha (Apple): Representing around 45% of Berkshire Hathaway's publicly-traded equity portfolio, Apple can justifiably be called a conviction Buffett holding. It's also fair to say that this year has been challenging for the company.
It's a challenging year for any company with heavy exposure to consumer electronics spending. A combination of rising interest rates pressuring consumer discretionary spending and a natural correction after the lockdown boom in consumer electronics puts Apple and others under pressure.
As such, it's no surprise to see the company report a year-over-year decline in Mac and iPad sales amid a 1.4% decline in overall sales to $81.8 billion. However, two things about the report highlighted the long-term attraction of the stock.
First, its core product is the iPhone. On a constant currency basis, the device's sales were up year over year in the quarter, a pretty good result under the circumstances and indicative of the strength of its competitive position.
Second, Apple's higher-margin services segment grew sales by 8.2% year over year to $21.2 billion, representing almost 26% of total sales, up from 23.6% last year. And the company has more than 1 billion paid subscribers across its services, up 150 million over the previous year.
As such, it's doing an excellent job of competing in the smartphone market and growing its service sales, and if the trend continues, then it will emerge from the consumer spending funk in a much stronger position than before it.
That will keep Warren Buffett happy.
Chevron greases the wheels of Buffett's passive income
Scott Levine (Chevron): While Berkshire Hathaway has reduced its position in Chevron recently, it continues to hold a sizable spot in Buffett's portfolio. Valued at about $25 billion, Berkshire Hathaway's position in Chevron makes it the fifth-largest holding in the portfolio.
The energy stalwart has an ample upstream business that was strengthened with the recent acquisition of PDC Energy, a transaction expected to yield $1 billion in annual free cash flow. It has a strong onshore presence in the Permian Basin, as well as numerous deepwater assets in the Gulf of Mexico, Western Africa, Australia, and the Eastern Mediterranean.
And the company's strong pipeline business and downstream operations give it a powerful presence throughout the value chain.
With Chevron's fundamentals, it's clear why Buffett chooses it to power the Berkshire Hathaway portfolio. For one, he values a company's ability to generate profits from shareholder equity, so its strong three-year average return on equity of 10.7% is attractive to him.
The company's conservative approach to leverage also appeals to Buffett. Chevron's debt-to-equity ratio of 0.13 stands out in comparison to its leading peers: ExxonMobil, Shell, and TotalEnergies.
XOM debt-to-equity ratio data by YCharts.
And Chevron's commitment to rewarding shareholders -- it has raised its dividend for 36 consecutive years -- is yet another draw for Buffett. The stock has a forward-yielding dividend of 3.9%, and management has said it's dedicated to keep growing the payout as long as the price of Brent crude remains above $50 per barrel.
Would you benefit from buying these Buffett stocks?
Both Apple and Chevron are alluring investments. Some might buy Apple simply because it's the largest position in the Berkshire Hathaway portfolio. But the company's commanding position in the smartphone market, its fervent customer loyalty, and considerable financial strengths are enough reasons to buy the stock.
Chevron, meanwhile, is a leading energy stock with strong financials and a commitment to returning capital to shareholders.
